REUTERS, ISTANBUL- The Constitutional Court begins deliberating on Monday on whether the ruling AK Party has engaged in Islamist activities and should be closed, a case that has plunged Turkey into political and economic uncertainty.

The court can find the AK Party not guilty and dismiss the case, or convict it and either fine or ban the party and some of its leaders, in which case the government will fall and early parliamentary elections be called, possibly in November.

The case has entrenched the opposition between a government which, though rooted in political Islam, denies the charge of trying to introduce Islamic rule, and an establishment which sees itself as the guardian of secularism.

The AK Party won a landslide victory in elections last year and has carried out pro-EU reforms and secured strong economic growth since coming to power in 2002.

Shutting such a popular party, which won almost half the popular vote in last year's parliamentary election, would be politically difficult and would harm Turkey's slow-moving EU accession process.

A decision to close down the party would require seven of the 11 judges to vote for such action. The Constitutional Court is the highest judicial body in Turkey, a predominantly Muslim but officially secular state.

The case has plunged Turkey into political uncertainty that undermined financial markets and sapped the energy of the European Union-candidate's reform process.

Some analysts believe that whatever the verdict, the increased animosity between the AK Party and the establishment will damage Turkey's economic and political life.

"The political stability that Turkey has enjoyed over the past five years may become a thing of the past and we might be in a new era of intense power struggle," said Goldman Sachs economist Ahmet Akarli.

Court discussions are likely to be drawn out as a guilty verdict would force the judges to rule on whether to ban Prime Minister Tayyip Erdogan, President Abdullah Gul and 69 major AK Party officials from party membership for five years.

Analysts expect a verdict by early August, and most think the most likely outcome is the closure of the AK Party, despite growing speculation to the contrary.

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If the court bans the party, the government will dissolve and the remaining AK Party deputies will become independent MPs who may form a new party or join an existing one.

Commentators say the most likely scenario would then be an early parliamentary election. Erdogan would likely try to regain the office of prime minister as an independent.

He acknowledged for the first time in an interview published on Saturday that the AK Party had made mistakes which had contributed to the crisis.

In 1997 the army removed a party from power on accusations of Islamist activity, part of an elite of military, judicial and academic officials who regard themselves as the custodians of Turkish secularism.

Their power struggle with the AK Party flared up in January when the government lifted the ban on female students wearing the Islamic headscarf at university. The Constitutional Court annulled that reform in June.

The AK Party's public support extends beyond its heartland into the middle class but the political instability generated by the row is likely to hit support for any successor, said Eurasia Group analyst Wolfango Piccoli.

"The new party is unlikely to enjoy the same level of support that the AKP won last year from Turkey's liberal and urban constituency, won over by the party's past reform record, sound economic policies, and above all, restraint," he said.

A ban on the charismatic Erdogan would be a blow to any successor party in campaigning.

A decision to close the party would probably slow Turkey's EU accession bid, and Brussels' reaction to the verdict would be closely monitored.

"If Turkey is going to get into the EU, which we strongly support, it has to adhere to European standards. So there needs to be an evolution of the democratic system, and that's what is under way," US Deputy Assistant Secretary of State Matthew Bryza told Reuters in a recent interview.

Turkish courts have banned more than 20 parties over the past decades on allegations of Islamist or Kurdish separatist agendas. A predecessor to the AK Party was closed down in 2001.

The political climate has been further unsettled by a case involving what a prosecutor says is a shadowy, ultra-nationalist group that wanted to overthrow the government by force.